Ecuador Grapples with Money Laundering as Drug Trafficking Booms
The Alarming Rise of Money Laundering in Ecuador
A recent study by the Ecuadorian Observatory of Organized Crime (OECO) has highlighted the growing issue of money laundering in six states, second only to drug trafficking. The research sheds light on three major obstacles hindering efforts to combat this problem: the country’s use of the US dollar, a booming illicit drug market, and underlying structural issues.
The Obstacles to Combating Money Laundering
- Use of the US Dollar: Ecuador’s decision to adopt the US dollar as its official currency has facilitated money laundering by allowing for easy movement of dirty money globally.
- Booming Illicit Drug Market: The country’s role as a transit point for cocaine produced in Colombia and Peru has led to a surge in drug trafficking activity, resulting in increased violence and murders jumping 82% last year.
- Structural Issues: Institutional limitations, including a lack of formal mechanisms to investigate cases and limited human and technological resources, make the banking system vulnerable to money laundering.
Industries Facilitating Money Laundering
The study found that money laundering is concentrated around industries such as:
- Real Estate: The sector has historically facilitated the appearance of legality, making it attractive to money launderers.
- Secondhand Car Sales: This industry has been exploited by criminal groups for its ease of use and low regulatory oversight.
- Construction: The construction industry’s complex transactions and lack of transparency make it an ideal environment for money laundering.
- Online Gambling: The online gambling sector has emerged as a new channel for money launderers due to its anonymity and lack of regulation.
The Scale of Money Laundering in Ecuador
The Latin American Strategic Center for Geopolitics estimates that around $3.5 billion was laundered through Ecuador’s financial system in 2021, nearly three times the amount between 2007 and 2016. The majority of suspicious transaction reports were linked to the banking sector, highlighting loopholes exploited by criminal groups.
The Need for Action
To combat money laundering effectively, it is essential to address the underlying structural issues, including institutional limitations and a lack of articulation between the justice system and administrative units. This requires:
- Strengthening Institutional Mechanisms: Improving formal mechanisms to investigate cases and increasing human and technological resources.
- Enhancing Collaboration: Developing closer ties between the justice system and administrative units to ensure that suspicious transaction reports are thoroughly investigated.
- Regulatory Oversight: Implementing robust regulatory oversight to prevent money laundering in industries such as real estate, secondhand car sales, construction, and online gambling.